acct exam III

Highly achievable budget targets

-may generate greater management commitment to the budget -may help build manager confidence -are used in most companies

What assumption underlies net present value analysis?

All cash flows generated by an investment project are immediately reinvested at a rate of return equal to the discount rate.

Which of the following budgets shows the company's planned profit and serves as a benchmark against which subsequent company performance can be measured?

Budgeted income statement

On the cash budget, what is subtracted from total cash available to find the cash excess or deficiency?

Cash disbursements

Which of the following budgets are directly based on information from the sales budget?

Production Selling & administrative expense

The cost of capital is the

The average rate of return a company must pay to its long-term creditors and shareholders for the use of their funds.

A flexible budget performance report combines the

activity variances with the revenue and spending variances

When computing the payback period, depreciation expense is Blank______ net income

added back to

A budgeted balance sheet is developed using data from the Blank______ of the budget period and data contained in the various schedules. Multiple choice question.

beginning

To screen out undesirable investments, ______ use(s) the cost of capital.

both the net present value and internal rate of return methods

The final schedule of the master budget is the

budgeted balance sheet

Which of the following is not found in the financing section of the cash budget?

cash deficiency

When discussing capital investments, the term out-of-pocket costs refers to

cash outlays for salaries, advertising, and other operating expenses

Which of the following is NOT a typical capital budgeting cash outflow?

cost reductions

A revenue variance is the

difference between the actual total revenue and what the total revenue should have been, given the actual level of activity for the period.

Performance reports for cost centers

do not include revenues or net income

budgets _________

encourage managers to think about and plan for the future and the budgeting process can uncover potential bottlenecks before they occur coordinate the activities of the entire organization by integrating the plans of its various parts define goals and objectives that can serve as benchmarks for evaluating subsequent performance

When a capital investment decision is being made between two or more alternatives, the project with the shortest payback period is always the most desirable investment.

false

revenue and costing budget

flexible - actual

A budget that takes into account how costs are affected by changes in level of activity is a(n)

flexible budget

When making a capital budgeting decision, it is most useful to calculate the payback period

if a company is "cash poor" as part of the screening process

payback period equation

investment required/annual net cash inflow

The payback method ______.

is not a true measure of investment profitability does not consider the time value of money ignores all cash flows that occur after the payback period

The concept that focuses on important variances and ignores trivial ones is

management by exception

What is subtracted from total budgeted selling and administrative expenses to determine the cash disbursements for selling and administrative expenses?

non-cash expenses

Actual cash outlays for operating expenses are

out of pocket costs

A 12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed is called a(n)

perpetual budget

activity budget

planning - flexible

The budgeted income statement does NOT rely on information from the Blank______ budget.

production

The cash budget uses information from several other budgets. Which of the following budgets is NOT used to prepare the cash budget?

production

A cost center's performance report does not include

revenue net operating income

Another name for a participative budget is a

self imposed budget

In large organizations, many smaller individual budgets submitted by department heads and other

selling and admin

The internal rate of return is

the rate of return of an investment project over its useful life

The net present value of a project is Blank_____

used in determining whether or not a project is an acceptable capital investment the difference between the present value of cash inflows and present value of cash outflows

Companies use the __________ ___________ cycle to evaluate and improve performance.

variance analysis

screening

whether investment is acceptable

preference

which investment

The original investment in a capital project has been recovered if the net present value is

zero or above